Lord of the Rings

I was looking through my bookcase the other day for some summer time reading and came across Lord of the Rings and decided to reread it.  

The first time I read it was in the winter of 2006.  If you have read it, you know it is an epic novel running to over 1,000 pages.  I started it during the Christmas holidays and continued reading it every evening in January.  When I turned the last page in late January, I almost felt I was putting a friend away as I had become so engrossed in the story.  

However, the reason I picked it up in the first place was not out of literary interest.  Around that time, when I was still General Manager of Neptune Theatre, I made what turned out to be one of my worst investment decisions.   I invested in the limited partnership associated with the Lord of the Rings musical produced in Toronto.  

That musical, which became the most expensive musical ever produced in Canada, opened in March of 2006 to very mixed reviews and closed six months later.   After reading the prospectus, I made my decision to invest assuming it would run for at least ten years.   Need I say more regarding how much of my investment was recouped?   Other than the tax write off and the great opening night party I attended courtesy of the producers, let’s just say that my return was better measured in terms of lessons learned than ROI. 

In making my decision, I made what I have come to know are typical mistakes many people make when investing their own money.  For example:

·       I invested based on my own emotion and excitement about the story and because some of my theatre friends were investing. 

·       Despite the fact this was a high risk investment which was clearly disclosed in the prospectus; I ignored that caution even though everything else in my risk tolerance profile would direct me to low or moderate risk investments.

·       I thought I knew it all!  After all I was managing the finances of a theatre and I know how to read financial statements and financial projections and compute breakeven yada, yada, yada…. 

When I read the prospectus I thought I was making a very informed decision.  In fact, I knew nothing about the track record of some of the key people involved, did not know if the musical was any good and had no idea of the weekly cash flow requirements of this large scale production.  

Since the last few years of investing have left some people thinking they are on an endless journey through the dreaded realm of Modor, I suggest you take a lesson from my experience and from the Lord of the Rings story.  I recommend you behave like Frodo did on his difficult journey across Middle Earth, regarding your investment decisions: 

·       Find yourself a trusty advisor to bring along.     Someone like Frodo’s reliable companion Samwise Gamgee or Strider (Aragorn), whose counsel and advice you can rely on.  Like Frodo, you can’t successfully complete the whole journey on your own.

·       Be clear about your investment objectives and stick to them.   In my world, we call it an Investment Policy Statement.  It outlines clearly your portfolio objectives, your risk tolerance and your time horizons for investing.   It will help you fend off the occasional Orc that appears, such as yet another disappointing European leaders’ economic summit which triggers more market volatility.

·       Don’t make investment decisions based on fear or euphoria.    There is no one Ring (investment) which unleashes all the power in the world.  While it may be tempting, don’t get caught up in the search for the Ring, when all you really want to do is retire to a nice comfy place like the Shire.

And if you are just looking for a good summer time read, I highly recommend Lord of the Rings.  It still holds its charm on second reading.

Doreen Malone is a Chartered Accountant and Financial Planner with Assante Capital Management Ltd where she aspires to help clients organize and manage their financial affairs to make their lives easier. She can be found at www.doreenmalonefinancialplanner.com